Regan Carroll v. Charles Jadallah ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 11 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: REGAN CARROLL, No. 17-60059
Debtor, BAP No. 16-1125
------------------------------
MEMORANDUM*
REGAN CARROLL,
Appellant,
v.
CHARLES I. JADALLAH,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Jury, Faris, and Brand, Bankruptcy Judges
Submitted December 20, 2018**
San Francisco, California
Before: BOGGS,*** PAEZ, and OWENS, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Danny J. Boggs, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
After a one-day trial in an adversary proceeding, a bankruptcy court held
that $500,000 of a loan made by creditor Charles Jadallah to debtor Regan Carroll
is nondischargeable under 11 U.S.C. § 523(a)(2)(A). A Bankruptcy Appellate
Panel (“BAP”) affirmed the bankruptcy court’s judgment, and Carroll timely
appealed to this court. As the parties are familiar with the facts, we do not recount
them here. We affirm the bankruptcy court’s decision.
The bankruptcy court’s legal conclusions are reviewed de novo. Rubin v.
West (In re Rubin), 875 F.2d 755, 758 (9th Cir. 1989). Findings of fact, on the
other hand, must be upheld unless they are clearly erroneous. Briney v. Burley (In
re Burley), 738 F.2d 981, 986 (9th Cir. 1984).
Section 523(a)(2)(A) excepts from discharge any debts for money, property,
or services to the extent they are obtained by false pretenses, a false representation,
or actual fraud. In order to establish that a debt is nondischargeable under
§ 523(a)(2)(A), a creditor must establish five elements by a preponderance of the
evidence:
(1) [M]isrepresentation, fraudulent omission or deceptive conduct by the
debtor; (2) knowledge of the falsity or deceptiveness of his statement or
conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor
on the debtor’s statement or conduct; and (5) damage to the creditor
proximately caused by its reliance on the debtor’s statement of conduct.
Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d
1081, 1085 (9th Cir. 2000).
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Here, the bankruptcy court found that all five elements were met for both a
nondisclosure and a misrepresentation claim with respect to several advances that
Jadallah made to Carroll throughout 2013. On the nondisclosure claim, the court
found (1) that Carroll had a duty to disclose to Jadallah several material facts,
including that Carroll had unilaterally changed the scope of the project, and did not
do so; (2) that Carroll knew of these facts when requesting several advances from
Jadallah; (3) that Carroll’s intent to deceive Jadallah could be inferred from the fact
that he feared that Jadallah would not make further advances had he known about
the withheld facts; (4) that Jadallah did not know of these facts and consequently
relied on Carroll’s representations; and (5) that Jadallah consequently provided
$400,000 in advances at Carroll’s request and was not paid back. None of these
findings were clear error.
On the misrepresentation claim, the court found (1) that Carroll made
numerous misrepresentations to Jadallah at a June 2013 meeting; (2) that Carroll
knew that those misrepresentations were false; (3) that Carroll’s intent to deceive
Jadallah could be inferred because the only plausible explanation he had for
making those misrepresentations was to induce Jadallah to advance more funds; (4)
that Jadallah justifiably relied on those misrepresentations because he did not know
of the true facts and had no reason to doubt Carroll; and (5) that Jadallah
consequently provided $100,000 in advances at Carroll’s request and was not paid
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back. None of these findings were clear error, either.
In an attempt to show that Jadallah did not in fact suffer any damages from
the transaction,1 Carroll has submitted several pieces of evidence to this court
purporting to prove that Jadallah profited from a post-trial sale of the property in
question.2 Jadallah has moved to strike these documents from the record on
appeal.3 None of these documents were part of the trial record, nor were they
admitted into evidence by the bankruptcy court. All of the facts they are designed
to prove occurred after the trial concluded. “Papers not filed with the district court
or admitted into evidence by that court are not part of the clerk’s record and cannot
be part of the record on appeal.” Kirshner v. Uniden Corp. of Am., 842 F.2d 1074,
1077 (9th Cir. 1988). Similarly, “[p]apers submitted to the district court after the
ruling that is challenged on appeal should be stricken from the record on appeal.”
Id.. Accordingly, we grant Jadallah’s motion to strike those documents from the
1
Carroll has also couched this mitigation theory under California’s “special
benefits doctrine.” The special-benefits doctrine “reflects the basic compensatory
theory underlying tort damages by restricting recovery to the harm actually
incurred” and is “considered in mitigation of damages, to the extent that this is
equitable.” Heckert v. MacDonald, 256 Cal. Rptr. 369, 372-73 (Ct. App. 1989).
2
Carroll first introduced these pieces of evidence in a post-trial motion for
reconsideration, which the bankruptcy court denied.
3
Specifically, Jadallah has moved to strike: (1) a Declaration of Michael Cohen in
Support of Request, and Request for Judicial Notice, dated September 2, 2016, and
(2) a Declaration of Regan Carroll in Support of Revised Motion for Judgment on
the Pleadings, Combined With Motion for Summary Judgment, dated November
13, 2014.
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record on appeal and do not consider them. See id. at 1077-78 (striking documents
from the record on appeal and therefore giving them no consideration in
adjudicating the appeal). Having stricken those documents, nothing in the actual
trial record pertains to the post-trial sale of property, on which Carroll’s mitigation
claim depends. Accordingly, we reject this argument.
Finally, Carroll renews an argument from his post-trial motion for
reconsideration that the June 2013 statement he made to Jadallah that $100,000
would be sufficient to finish the job was a statement of his “financial condition”
and therefore not within the purview of § 523(a)(2)(A). This argument fails for
two reasons. First, Carroll failed to raise this argument before or at trial and
asserting new arguments for the first time in a post-trial motion for reconsideration
is impermissible. Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir. 2003) (a motion
to amend judgment “may not be used to raise arguments or present evidence for
the first time when they could reasonably have been raised earlier in the
litigation”). Second, even if the court entertained such an argument, Carroll’s
statements do not fall under the umbrella of those “respecting the debtor’s or an
insider’s financial condition,” which are excluded from consideration under §
523(a)(2)(A). In Barnes v. Belice (In re Belice), 461 B.R. 564 (BAP 9th Cir.
2011), the BAP adopted the test articulated by the Tenth Circuit in determining the
meaning of this provision:
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Statements that present a picture of a debtor’s overall financial health
include those analogous to balance sheets, income statements, statements of
changes in overall financial position, or income and debt statements that
present the debtor or insider’s net worth, overall financial health, or equation
of assets and liabilities. . . . What is important is not the formality of the
statement, but the information contained within it—information as to the
debtors or insider’s overall net worth or overall income flow.
461 B.R. at 578 (quoting Cadwell v. Joelson (In re Joelson), 427 F.3d 700, 714
(10th Cir. 2005), abrogated on other grounds by Lamar, Archer & Cofrin, LLP v.
Appling, 138 S. Ct. 1752 (2018)). Here, Carroll’s statement that $100,000 would
be sufficient to finish the job was not akin to a balance sheet, income statement, or
any other document reflecting his financial condition. Rather, he simply made a
statement pertaining to whether the sum advanced would be sufficient to complete
the work on the property. Thus, Carroll’s argument fails.
Accordingly, for the foregoing reasons, we AFFIRM.
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